September quarter US GDP growth came in in at a respectable annualised rate 3.5%. That was slightly higher than average market expectations. Furthermore, the detail of the result was suggestive of solid momentum in the US economy.
Personal consumption growth was held back over
the quarter by soft growth in services.
That appears to have been the result of a mild summer and the resultant impact
on utilities spending however consumption of durable goods posted a robust 7.2%
Private investment growth was held back by a negative contribution from inventories. Residential investment looked soft with an annualised
increase of 1.8% but disappointment needs to be tempered by observing that
followed an 8.8% increase in the prior quarter. But growth in investment equipment
came in at 7.2%. All good.
Net exports was due a positive bounce after
two negative quarters and didn’t disappoint with a 1.3% percentage point
contribution to the overall result.
Expect that to revert to a negative contribution next quarter.
To look through the noise in any GDP result
the best number to focus on is real final sales. That came in at an annualized 4.2% in the
quarter, up from 3.2% in the June quarter and the strongest result since the increase
of the same magnitude in fourth quarter of 2010. To me that’s indicative of an economy that’s
building growth momentum. This result
lifts our annual average GDP growth forecast for 2014 slightly to 2.3% (from
2.2%) and supports our expectation of around 3.0% growth in 2015 and 2016.
There are no monetary policy implications in
this result other than to give the FOMC increased confidence that growth in the
economy is on a firm footing and that further normalisation of monetary conditions
will be appropriate in time.